RBC Bearings Incorporated
Q1 2018 Earnings Call Transcript

Published: 8 May 2018

[Operator:]

Good day and welcome to the Regal Beloit First Quarter 2018 Earnings Conference Call and Webcast. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Mr. Rob Cherry, Vice President, Investor Relations. Mr. Cherry, the floor is yours, sir.

[Robert Cherry:]

Thank you, operator. Good morning and welcome to Regal Beloit's first quarter 2018 earnings conference call. Joining me today are Mark Gliebe, our Chairman and Chief Executive Officer; Jon Schlemmer, our Chief Operating Officer; and Rob Rehard, our Vice President and Chief Financial Officer. Before turning the call over to Mark, I would like to remind you that the statements made in this conference call that are not historical in nature are forward-looking statements. Forward-looking statements are not guarantees. Since there are inherent difficulties in predicting future results and actual results could differ materially from those expressed or implied in forward-looking statements. For a list of factors that could cause actual results to differ materially from projected results, please refer to today's earnings release and our SEC filings. On slide 3, we state that we are presenting certain non-GAAP financial measures in this presentation. We believe these are useful financial measures to provide you with additional insight into our operating performance and for helping investors understand and compare our operating results across accounting periods and in the same manner, as management. Please read this slide for information regarding these non-GAAP financial measures. And please see the Appendix for reconciliations of these measures to the most comparable measures in accordance with GAAP. Now, I would turn the call over to Mark.

[Mark Joseph Gliebe:]

Thanks, Rob. Welcome, everyone. Thank you for joining our first quarter call and thank you for your interest in Regal. We'll follow our normal agenda today. I'll make a few opening comments. Rob Rehard, our new CFO as of April 1 will provide a financial update. Jon will provide color on market's operations and the performance of our three segments. After that, I'll summarize and we'll move to Q&A. Regal delivered a solid top line performance in the first quarter with organic sales up 5.8%, adjusted operating margin up 60 basis points, and adjusted earnings per share up 25%. At a segment level in Commercial and Industrial, organic sales were up 5.6% with broad strength in the North American Commercial and Industrial end markets, oil and gas and in most Asian end markets. In the Climate segment, organic sales were up 3.9% with strength in North American HVAC, partially offset by commercial refrigeration. Finally in the PTS segment, organic sales were up a strong 8.8% for the quarter with robust growth in oil and gas and renewable energy and generally strong end markets globally. From an operating profit perspective, the adjusted operating margin improved 60 basis points year-over-year. The operating margin benefited from strong volume, incremental price, and productivity; but was held back by commodity inflation and mix. The resulting adjusted earnings per share was up 25%. That's a $0.27 year-over-year increase of which only $0.03 came as a result of the recent tax reform. On capital allocation, we repurchased $26 million of our shares in the quarter; and on April 10, we closed on the acquisition of Nicotra Gebhardt. As you may recall from our earlier press release, we purchased Nicotra for €125 million, which represented a 7.8 times multiple and 2017 EBITDA. Overall, it was a solid quarter with strong organic sales growth and further progress on our march to improve operating margins. Looking forward, as we enter the second quarter, we are encouraged that our orders remain up year over year in every segment. The environment remains robust in most of our markets around the world. Additionally, as we exited the first quarter, we announced a second general price increase effective in April. We increased our prices to stay ahead of the impact of further steel inflation that we saw coming in the beginning of the second quarter of 2018. For the first quarter, price/cost was neutral, and we expect price/cost to be at least neutral for the rest of the year. For 2018, our guidance assumes total year organic growth to be up mid-single digits. We are expecting our top-line to benefit from continued growth in residential and light commercial HVAC end-markets, robust Commercial and Industrial markets, and positive incremental pricing. We are forecasting that organic growth rates will be stronger in the first half of the year versus the second, simply due to the more difficult second half comparisons. On margin performance, we do expect year-over-year adjusted operating margin improvements for the year. We expect to see benefits from volume leverage in our simplification efforts for the rest of 2018. We are raising our total year 2018 adjusted earnings per share guidance to $5.60 to $6, which at the midpoint, now represents a 19% increase over 2017 adjusted earnings per share. The $0.25 earnings per share increase from the prior guidance includes a $0.13 to $0.15 per share contribution to our adjusted earnings from the Nicotra Gebhardt acquisitions. Before I turn it over to Rob, let me make a couple of comments about the recently announced U.S. tariffs. With regards to Section 232 tariffs on steel and aluminum enacted in March of 2018, Regal purchases most of our electric-grade steel from U.S. suppliers, for products produced in North America. So we do not expect a direct impact on steel from the 232 tariffs. There could be an indirect impact from overall steel inflation. On aluminum, most of our aluminum is purchased from North American suppliers. So again, we do not expect any direct impact. And the 301 tariffs, as you know, these tariffs have not yet been enacted and there remains a lot of uncertainty. We're analyzing the potential implications to our business both negative and positive and we are developing mitigation plans to address any negative impact. These mitigation plans would include utilizing our global manufacturing footprint and passing along further price increases to offset enacted tariffs. Given the fluid nature of the matter, it's too soon to discuss any specifics. I will now turn it over to Rob.

[Robert Rehard:]

Thank you, Mark, and good morning, everyone. Before I get started, I would like to mention that any reference to prior-period comparisons has been adjusted to reflect the adoption of the new GAAP pension accounting rules that went into effect at the beginning of this year. Please refer to the appendix in the earnings call presentation for the details. Sales in the first quarter 2018 $878.8 million, up 8% from the prior year. Foreign currency translation in the quarter was a positive 2.2%. Therefore, organic sales increased a solid 5.8% from the prior year with all three segments contributing. Our adjusted operating margin in the first quarter was 10.2%. Our margin was up 60 basis points compared to the prior year. Margins benefited from both volume growth and productivity improvements. Price/cost was neutral in the quarter and we incurred $1.2 million in LIFO expense, which was roughly split between the C&I and Climate Segments. In summary, we had strong organic sales growth and we continued to show improvement in our adjusted operating margin in the first quarter, both sequentially and year over year. Our first quarter 2018 earnings per share reported on a GAAP basis were $1.31. There was one adjustment to GAAP EPS in the first quarter. This adjustment was restructuring and related costs of $1.7 million or $0.03 per share. Net of these adjustments, the adjusted earnings per share for the first quarter were $1.34, representing a 25% increase from the prior year. Now, I will summarize a few key financial metrics. Our capital expenditures were $19.3 million in the first quarter. We continue to expect capital expenditures of $75 million for the full-year 2018. Our simplification activities resulted in $1.7 million of restructuring and related costs in the first quarter. We continue to expect restructuring and related costs of $10 million for the full-year 2018. In the upper-right quadrant, we show our effective tax rate information. The ETR in the first quarter was 21%, consistent with the guidance we provided earlier this year. We continue to expect our ETR to approximate 21% for the full-year 2018. In the lower-left quadrant, we present information on our first quarter 2018 balance sheet. Our total debt was $1.182 billion and our net debt was $1.012 billion. Our total net-debt-to-adjusted-EBITDA ratio was 2.1 at the end of the first quarter. In the lower-right quadrant, we present information on our free cash flow. We generated $23.2 million of free cash flow in the first quarter. As you'll recall, our free cash flow is normally lower in the first quarter due to the usual seasonal build. Additionally this year, we are experiencing strong market demand, which results in an increase in working capital. We continue to expect our free cash flow to net income to exceed 100% for the full-year 2018. And lastly, we repurchased 351,000 of our shares for $26 million in the first quarter. Now I would like to provide you with a financial summary of the Nicotra Gebhardt transaction. The purchase price for Nicotra Gebhardt was approximately $154 million. This represents a multiple of 7.8 times 2017 EBITDA. The acquisition of Nicotra Gebhardt is expected to favorably benefit Regal's 2018 adjusted in future earnings. On an adjusted basis, we estimate EPS accretion of between $0.13 to $0.15 per share in 2018. We anticipate our net-debt-to-adjusted-EBITDA to be 2.1 times at the end of the second quarter 2018. Now, I'll provide an update on our full-year guidance for 2018. Our guidance assumes mid-single-digit organic sales growth for the full-year. We're expecting a meaningful improvement in our adjusted operating margin for the full-year 2018, making this the second year of improvement. We continue to make solid progress towards achieving our three-year goals. We've increased our full-year 2018 GAAP EPS guidance to $5.29 to $5.69 per share. On an adjusted EPS basis, we've increased our full-year 2018 guidance to $5.60 to $6 per share, the expected adjustments to convert the GAAP EPS to the adjusted EPS, our restructuring and related costs of $10 million or $0.16 per share, and purchase accounting and transaction costs of $9 million or $0.15 per share. The increase of $0.25 from our previous guidance includes an expectation of $0.13 to $0.15 accretion from the Nicotra Gebhardt acquisition and the remaining improvement coming from the existing business. In summary, at the midpoint of our revised guidance, our full-year adjusted EPS is expected to be at 19% over the prior-year. Now, I will turn the call over to Jon.

[Jonathan J. Schlemmer:]

Thanks, Rob. Good morning, everyone. Before I cover the normal update on the segments, we'd like to give you an overview of the Nicotra Gebhardt business, including their products, the end markets, and the strategic fit with Regal. This is a premier air moving business with approximately $150 million in sales and adds to our growing lineup of energy-efficient air moving systems. We're now actively integrating this business into our Commercial and Industrial Systems segment. The Nicotra Gebhardt product offering serves a number of end markets. Most of the business is focused on air moving systems that provide comfort air for commercial building applications. These products manage the air delivery in commercial buildings, like the ones shown on the slide. The team has recently developed a number of exciting new energy-efficient products focused on this space. The business also produces fan filter units that are used in clean rooms and test laboratories as well as air moving systems targeted for a number of industrial applications. The strategic fit with this business is excellent. We see a great opportunity to combine Nicotra Gebhardt's air moving technology with Regal's energy-efficient motor and control technology to further expand the product offering. Our customers are looking for integrated solutions to help them meet and exceed energy efficiency regulations. The business builds on our core of energy-efficient products and aligns well with our investments in ECM motor and control technology and air moving technology. Nearly all of the sales are outside of North America. The business has operations in both Europe and in Asia. The acquisition helps to increase Regal's presence in Europe. The business helps us to expand our portfolio of motor, control and air moving system solutions. We held day one celebration events at all of the Nicotra Gebhardt sites to welcome the employees into the Regal family. Regal leaders attended each of these events to meet and engage with the new team. Everyone is excited about the opportunities we have to work together, to further improve and grow with the business. We're now actively integrating the business and pursuing the synergies. Now, let's walk through each of the segments and review more details on organic sales and operating margin performance. In Commercial and Industrial Systems, sales were $414 million with organic sales increasing 5.6% from prior-year. In the quarter, we experienced broad-based sales strength across a number of the C&I end markets. In particular, demand was strong in commercial HVAC, power generation and the oil and gas end markets. We also had strong demand in China and in Europe. Sales were up slightly in North America C&I distribution. However, sales declined in our pool motor aftermarket business. This mix was a headwind to our margin performance. Price improved sequentially and was up over prior year. Price/cost turned neutral in the first quarter ahead of our expectations. Adjusted operating margin was 7.3% of sales, up 120 basis points sequentially and up 10 basis points from prior year. Volume and improvements from our simplification programs had a positive impact on our margins. Mix was a headwind and partially offset the benefits of volume and simplification. Last quarter, we gave you an update on the actions taken to improve the profitability of our C&I segment and I'd like to walk you through a quick update. We're focused in these three areas and we've made good progress in the first quarter. We remain on track to deliver $6 million to $7 million of cost improvements from the simplification programs. In the first quarter, we initiated two additional programs that will be completed by the end of the year and will deliver an incremental $2 million in cost improvements in 2019. In the first quarter, we made the decision to implement another price increase in both our C&I and Climate businesses effective in April. We anticipate price/cost to remain neutral to slightly favorable for the remainder of the year. And finally, we're starting to realize the positive impact from volume and productivity improvements in our manufacturing operations. With all this, our guidance reflects further improvements in our C&I operating margins as we progressed through the year. In Climate Solutions, sales were $260 million with organic sales increasing 3.9% from prior year. In North America, sales to our residential HVAC OEM and distribution customers were up mid-single digits to prior year. Demand was up slightly in our international businesses. Sales in commercial refrigeration were down versus prior year. Price improved sequentially and was up over prior year. Price/costs turned neutral in the first quarter. Adjusted operating margin was 12.6% of sales, down 50 basis points from prior year. The higher volume and productivity in our manufacturing operations had a positive impact on margins. However, these improvements were offset by the investments in the FER growth programs and mix. Finally, for the next two quarters, we're expecting to see our typical increase in operating margins resulting from the higher seasonal demand. Sales in Power Transmission Solutions were $205 million with organic sales increasing a strong 8.8% from prior year. In the quarter, we experienced strength across the number of end-markets, including oil and gas, renewable energy, material handling and aerospace. Adjusted operating margin was 13.1% of sales, up 320 basis points from prior year and up 90 basis points sequentially. The higher volume, price/cost, and productivity in our manufacturing operations all contributed to the strong performance. This was the fourth consecutive quarter of improving margin performance in our PTS business, and we're expecting another year of meaningful margin improvement for the segment. I'll now turn the call back over to Mark.

[Mark Joseph Gliebe:]

Thanks, Jon. Now before we go to Q&A, I would like to briefly summarize our first quarter results and highlights. We had a solid first quarter and our outlook is optimistic. Organic sales increased 5.8%. Price/cost was neutral in the quarter and we expect price/cost to remain at least neutral for the remainder of the year. Our adjusted operating margins were up 60 basis points for the quarter and our adjusted earnings per share were up 25% as compared to prior year. Only $0.03 of the $0.27 earnings per share increase can be attributed to tax reform. And capital allocation, we repurchased $26 million of our shares in the quarter. And for the second year in a row, we recently doubled our normal dividend increase. Additionally, we closed on the Nicotra Gebhardt transaction in early April. As we entered the second quarter, orders were up year over year in every segment, and globally our markets remain strong. We increased our annual guidance for the year and we now expect that the adjusted earnings per share for the total year will increase 19% year over year at the midpoint. We will now take your questions.

[Operator:]

Thank you, sir. We will now begin the question-and-answer session. The first question we have will come from Julian Mitchell of Barclays. Please go ahead.

[Julian Mitchell:]

Hi. Good morning, and welcome, Rob to the role.

[Robert Rehard:]

Thank you.

[Mark Joseph Gliebe:]

Good morning, Julian.

[Julian Mitchell:]

Morning. My first question just on the better-than-expected performance managing price/cost. It seems like you did come in about a quarter earlier than expected in C&I and Climate on offsetting the higher costs. Just wondered what that was a function of. Was there anything timing-related or was it more on the gross price or the gross cost side? Maybe just give some color on that and how you view your industry peers. What are they doing on pricing as well?

[Mark Joseph Gliebe:]

So, Julian, thanks for the question. You're right. We did come in slightly ahead of where we had earlier expected and it was primarily driven by execution of our price increases. So that went well. And relative to our competition as best we could tell, it appears that they are also raising their prices.

[Jonathan J. Schlemmer:]

And Julian, this is Jon. I would say that on the cost side, cost were pretty much in line with what we had expected in the first quarter in terms of commodities. We did, however, see steel prices creeping up anticipating they would start to impact us in the second quarter and that's what led to our decision to make the second round of price increases in both Climate and C&I in April.

[Julian Mitchell:]

That's very clear. Thank you. And my second question may be homing in on one end market, which would be the North America resi HVAC market. Your sales there are up, I think mid-single digit, you'd said in Q1. A lot of the OEMs seemed to report very strong growth numbers in March, in particular, in that industry. So, maybe just give some color as to what you're seeing there right now. Do you think there's been much, if any, pre-buy? How are you thinking about inventories and so forth?

[Jonathan J. Schlemmer:]

So, on pre-buy, as it relates to the upcoming FER change, we don't think that impacted the first quarter. We're still watching that closely to see how it might impact us later in the year or perhaps in early 2019. In general, as you said, we saw North America residential HVAC up mid-single digits in the quarter. Price was a little bit of help to sales. High efficiency mix was down a little bit in the quarter. We think that was mostly timing-related. We also believe there was some OEM inventory timing impact that would impact our sales versus some of our customer sales in the quarter. For example, two of our large OEM customers we know produce less inventory in the period than they did in the prior-year. So, those would – that's kind of how we saw the quarter is shaping up for North America resi HVAC.

[Julian Mitchell:]

That's great. Thank you.

[Mark Joseph Gliebe:]

Thank you, Julian.

[Operator:]

Next, we have Jeff Hammond with KeyBanc Capital Markets.

[Jeffrey D. Hammond:]

Hey, good morning guys.

[Mark Joseph Gliebe:]

Morning, Jeff.

[Jonathan J. Schlemmer:]

Good morning.

[Jeffrey D. Hammond:]

Just to stay on HVAC, I think some have complained about cooler weather, but also distributors kind of loading in ahead of follow-on price increase. So, can you just talk about near-term trends there, and then also just how – what the magnitude of this investment spend was and a little more color on the mix? Thanks.

[Jonathan J. Schlemmer:]

So, on the weather impact, we look at our distribution business, for example, which tends to be largely driven by weather. It was strong for us in the quarter. I would say, we probably didn't see any trends from an order standpoint as it might relate to the price increase, for example, the April price increase. In fact, as we entered the second quarter, distribution demand stayed pretty strong, so we were pleased to see that. On the FER investments, as you know, we developed a platform of energy-efficient products to help our HVAC customers meet the new regulation ranging from an entry-level product to the higher-end system product with DEC Star. So, we've been focused on those investments, program development and some capacity increases. And that's having some impact on some incremental expense in the segment.

[Jeffrey D. Hammond:]

Okay. Then on C&I, I guess with the savings and your role in Nicotra, in there, what's kind of a reasonable kind of exit run rate for margins you've kind of been stuck in this kind of high-6s, low-7s? And just want to get a better sense of – on kind of where the progress is? And maybe just speak to Nicotra's margins relative to the base? Thanks.

[Mark Joseph Gliebe:]

I mean – so, I think – Jeff, thanks for the question. The good news is, we saw improvement in our margins both sequentially and year-over-year. And as Jon mentioned, we are expecting a meaningful margin improvement in the C&I segment, as we move through the rest of the year, based on some of the changes we've made, some of the progress we've made in the three areas that Jon outlined in his prepared script. On the Nicotra contribution, Nicotra is $150 million in sales going into a $1.6 billion segment. The margins are accretive to that segment. So there'll be a slight benefit to our margins from that acquisition.

[Jeffrey D. Hammond:]

Thanks.

[Mark Joseph Gliebe:]

Thanks, Jeff.

[Operator:]

The next question we have will come from Mike Halloran of Baird.

[Mike P. Halloran:]

Good morning, gentlemen.

[Jonathan J. Schlemmer:]

Good morning, Mike.

[Mike P. Halloran:]

So let's start on the capital side. Maybe talk about how you're thinking internally right now, about the balance between buybacks and acquisitions. And then secondarily, maybe some commentary on what the pipeline looks like for deals today? How full it is? And then how actionable it might be and what kind of pricing you're seeing?

[Jonathan J. Schlemmer:]

So Mike, thanks for the question. We have been communicating consistently and intend to stay the course on having a more balanced approach remaining to capital allocation. We did repurchase $45 million worth of our shares last year and $26 million in the first quarter of this year. Obviously, we did the deal with Nicotra, not a huge deal. And what I would say is, in today's environment, a relatively good multiple. So in terms of the pipeline is, it continues to build for us. We are cognizant of the elevated valuations out there, but the pipeline is building for us, and we're looking in the typical places that we have in the past our existing segment, things that would fit with our core products, with things we're good at, small motors with controls, larger motors, and then power transmission products, and anything one step removed from those core products.

[Mike P. Halloran:]

And then, on the PTS side, obviously, really healthy performance there, both top-line and bottom-line. Anything that you look at on either the top-line or bottom-line that you don't feel is sustainable from 1Q levels? In other words, are you guys expecting pretty normal seasonality on the revenue line from here for the rest of the year? And then, on the margin line, is that 13.1% op margin a good base to build off of from here?

[Jonathan J. Schlemmer:]

Mike, good morning. This is Jon. So I'll talk about both the top-line and bottom-line on a go-forward basis for PTS. So I would say nothing unusual on the top-line. We had good order strength in the quarter. And we're seeing order strength, as Mark mentioned, entering the second quarter on a year-over-year basis. So nothing unusual from a seasonality standpoint with the business on the top-line going forward. Other than, on a comparison basis, as we had commented before, we'll see some more difficult comps in the second half that'll affect the posted organic growth numbers. On the bottom-line, we had very good incrementals on the volume in the first quarter. And I would say, we're still expecting a meaningful margin improvement in PTS for the year, but probably the way you should think about it is, is more of the typical historical incrementals as we progress through the year.

[Mike P. Halloran:]

Great. Thanks for the time, gentlemen. Appreciate it.

[Mark Joseph Gliebe:]

Thanks, Mike.

[Operator:]

The next question we have will come from Scott Graham of BMO Capital Markets.

[R. Scott Graham:]

Hey, good morning, all.

[Mark Joseph Gliebe:]

Good morning, Scott.

[R. Scott Graham:]

Mark, Jon, very nice job here in this quarter navigating a pretty rough and tumble price/cost environment and staying ahead of that curve.

[Mark Joseph Gliebe:]

Thank you.

[R. Scott Graham:]

I wanted to maybe ask you sort of rest of the year, I know you're looking for the margins to be up, but if we were to kind of look at how that lays out. This price/cost maybe catch up a little bit in 2Q and then you're kind of ahead of it in the third and fourth quarters. In other words, can the operating margin be down in 2Q and then up kind of more than the margin was down in the 2Q, in the second half, is that maybe the way you're thinking about it?

[Mark Joseph Gliebe:]

Well, first, I'll comment on the price/cost. We were slightly ahead of our expectations. We were neutral on the first quarter. And as we commented, we believe we'll be neutral to slightly favorable as we move through the year. In terms of the cadence and margins, we commented earlier that we expect our C&I margins to improve meaningfully as we move through the rest of this year. And Jon also made the comment that in the second and third quarter in Climate, we'll see our normal seasonality boost as we get more leverage on volume simply because of seasonality in the second and third quarter.

[R. Scott Graham:]

Okay. Fair enough. Thank you. My other question is maybe a little bit longer-term, is a-year-and-change-ago, we talked about sort of the three-year plan and averaging, call it, 75 basis points of margin expansion each year. And then, of course, within six months of you're saying that steel started to inflate and what have you. If steel, let's say, sits down here and doesn't move, can we kind of get to that 75 basis points of margin expansion in 2019 or are you thinking that might actually occur in 2018? Because we didn't get in 2017, again, for reasons that we knew. But is that still doable for possibly even this year and next?

[Robert Rehard:]

So, I mean, if you're referring back to our Investor Day, when we commented that our op margin targets were in increase of 200 basis points to 250 basis points as compared to the year-end 2016. And last year, we had a 50-basis-point improvement on a year-over-year basis. And in the first quarter this year, we had a 60-basis-point improvement, and we commented that we expect a meaningful improvement for the year. So, our view is that we're making progress each year towards our three-year goal and we still believe we can achieve our three-year goal.

[R. Scott Graham:]

Wow. Great. Thank you.

[Robert Rehard:]

Thank you.

[Operator:]

The next question we have will come from Walter Liptak with Seaport Global. Please go ahead.

[Walter Scott Liptak:]

Hi. Thanks. Good morning.

[Jonathan J. Schlemmer:]

Good morning, Walt.

[Walter Scott Liptak:]

I wanted to ask you about the C&I simplification benefits that you're expecting for this year. It sounds like you didn't get much in the first quarter and it starts to ramp through the rest of the year. I wonder, if you could give us an idea, is it back-half loaded or we start seeing improvements in the second quarter?

[Jonathan J. Schlemmer:]

Yeah. It was a little broken up, Walter, but I think your question is on C&I segment. We got only 10 basis points of margin improvement in the first quarter. Well, that benefit that we expect will be back-half loaded. Or will we see some benefit in the second quarter? We do believe we'll see some benefit in the second quarter, additional benefit in the second quarter.

[Robert Rehard:]

Yeah. And I would say, Walt, the $6 million to $7 million of simplification programs, in particular, we fully expect to see that benefit in 2018. Most of those projects are complete. There's just one project that was put in the category is largely complete now. So, you're right, it was not divided by 4 in terms of impact, so a little less impact in the first quarter. It will grow in the second quarter and then continue in the second half, but we fully expect to realize the full $6 million to $7 million in the year.

[Walter Scott Liptak:]

Okay. Great. Thanks. And then, on the two new programs that you're talking about for this year, are there any costs associated with those that act as headwinds? And maybe give us some idea of the size of those, are they bigger than the ones they had last year that benefited this year?

[Robert Rehard:]

They're a little smaller than the ones we did last year, the four key programs we teed up and have implemented for C&I similar type of project in terms of footprint simplification programs. I would say, there'll be a little bit of costs associated with those programs in the year.

[Mark Joseph Gliebe:]

But those costs are included in our restructuring estimate, which we stated earlier was $10 million for the year, but did some portion of that.

[Jonathan J. Schlemmer:]

Correct. Correct. And the benefits will be – well, we'll complete those before we exit the year. The benefits will be an impact for the next year 2019.

[Walter Scott Liptak:]

Okay. And the benefits will be lower than the benefits you got or you're getting in 2018?

[Jonathan J. Schlemmer:]

Yeah, we've estimated for these two incremental projects $2 million of benefit. Now, we're going to continue to look for additional simplification programs in the segment, because clearly we still have work to do to improve the margins beyond just what we'll do in 2018.

[Walter Scott Liptak:]

Okay. Got it. Thank you.

[Mark Joseph Gliebe:]

Thanks, Walt.

[Operator:]

Well, at this time, we're showing no further questions. We'll go ahead and conclude our question-and-answer session. I would now like to turn the conference call back over to Mr. Mark Gliebe for any closing remarks. Sir?

[Mark Joseph Gliebe:]

Thank you, Mike. Thank you for your questions today, everybody, and for your interest in Regal. Have a great day.

[Operator:]

And we thank you, sir, and to the rest of the management team also for your time today. Again, the conference call has now concluded. At this time, you may disconnect your lines. Thank you again, everyone. Take care and have a great day.